Nippon Kayaku (TSE:4272) Is Paying Out A Dividend Of ¥22.50

Nippon Kayaku Co., Ltd. (TSE:4272) has announced that it will pay a dividend of ¥22.50 per share on the 2nd of December. The dividend yield will be 3.5% based on this payment which is still above the industry average.

View our latest analysis for Nippon Kayaku

Nippon Kayaku's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 148% of what it was earning and 95% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Earnings per share is forecast to rise by 34.3% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 117% over the next year.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥45.00. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Nippon Kayaku's EPS has declined at around 17% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Nippon Kayaku's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Nippon Kayaku has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Nippon Kayaku not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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